The finance ministers of the Group of Seven (G7) have promised to step up their efforts to thwart Russia’s attempts to evade Western sanctions put in place after Moscow started its all-out war against Ukraine.
The G7 pledged in a statement following their meeting in Washington to take additional measures, including focusing on violators of the earlier-introduced oil price restriction, although they did not make the details public.
“We remain committed to taking further initiatives in response to oil price cap violations,” the group said in a statement after a meeting in Washington. The specifics of those additional measures were not provided, as reported by The Guardian.
The G7, in collaboration with the EU and Australia, established the 2022 Oil Price Cap with the aim of limiting Russia’s oil earnings without significantly impacting global oil prices.
However, certain nations—most notably China—have persisted in importing Russian crude oil in spite of the price cap.
G7 aims at “raising the costs to Russia of using the shadow fleet”
In addition, the G7 finance ministers announced that they would implement further steps to “raise the costs to Russia of using the shadow fleet to evade sanctions.”
Russia has organized a “shadow fleet” of over 600 tankers, often hidden through shell companies, to circumvent the G7 price cap of $60 per barrel.
Officials claim that by moving oil without legally identifying its cargo or itinerary, Russia has circumvented sanctions by using its fleet of shadow tankers, many of which are outdated, unregistered, and badly maintained.
The US and EU have already sanctioned a number of the tankers, notably those operated by Russia’s state-controlled Sovcomflot, for allegedly regularly transferring cargo at sea in order to evade detection.
According to a Kyiv School of Economics report, Russian oil exports through its shadow fleet have almost doubled over the past year, reaching 4.1 million barrels per day.
A recent media investigation has revealed at least nine cases of Russian shadow fleet vessels leaving oil spills in global waters since 2021. Journalists found oil leaks linked to Russia’s “shadow fleet” in different parts of the world—from Thailand to Vietnam, Italy, and Mexico.
Besides being unsafe and unregulated, these vessels often lack insurance. In the event of a leak or a more serious spill, it will be difficult for governments to hold these vessels accountable.
Oil Price Cap to limit Russia’s ability to fund its war against Ukraine
The Western coalition adopted the Price Cap to limit Russia’s ability to fund its war against Ukraine through the sale of its oil. The Price Cap prohibits maritime providers from engaging with Russian-origin crude oil that exceeds $60 per barrel in price.
In December 2022, the Western coalition set an upper limit of $60 per barrel for Russian oil exports by sea. The sanctions also prohibit Western companies from providing oil transportation services from Russia at a price higher than the ceiling.
The restriction has forced Russia to redirect its oil sales to much more distant countries, such as China and India, and to invest in “shadow fleets” of worn-out tankers that are not officially tracked.
Sanctions against ships involved in Russia’s shadow fleet
In February, the US Treasury Department’s Office of Foreign Assets Control announced the second round of sanctions in 2024 for violating price restrictions on the maritime transportation of Russian oil.
The new US sanctions target four legal entities and one vessel involved in a scheme to violate the $60 per barrel price ceiling for Russian oil at the end of 2023. Three companies registered in the United Arab Emirates and one in Liberia were subject to the sanctions.
In July, the United Kingdom added 11 new tankers to its sanctions list. They are linked to the transportation of oil or oil products from Russia to third countries. The government clarified that vessels involved in activities aimed at destabilizing, undermining, or threatening Ukraine’s territorial integrity, sovereignty, or independence were subject to the sanctions.
On June 24, the EU Council announced new sanctions against tankers belonging to Russia’s shadow oil fleet.
In July, more than 40 European countries agreed on a plan to combat Russia’s oil “shadow fleet” at the summit of the European Political Community.
Oil price cap compliance and enforcement
In February, the Price Cap Coalition issued an “Oil Price Cap Compliance and Enforcement Alert.” It covers Russia’s evasion strategies for circumventing the price cap.
The enforcement alert identifies sanctions evasion methods that industry stakeholders need to diligently monitor.
First, there are opaque shipping and extra costs as a result of attempts to conceal price, shipment, customs, and insurance fees.
Second, the use of a complicated supply chain, third-party middlemen, and shell firms to conceal the origin of Russian oil. It includes frequent changes in ownership of vessels.
Third, the use of Russia’s “shadow fleet,” made up of old vessels with hidden ownership that do not adhere to industry standards.
Stakeholders must raise red flags in such cases and actively conduct due diligence to prevent Russia from evading the oil price cap.
G7 aims to prevent Russia’s sanctions evasion and to aid Ukraine
Furthermore, the G7 ministers indicated their intention to stop financial institutions from aiding Russia’s sanctions evasion, noting networks of foreign companies set up by Russian banks to get around restrictions.
The G7 ministers also announced a $50 billion loan to Ukraine during the summit. Instead of Ukraine repaying the loan, money collected by Russian assets frozen and seized after the war started in February 2022 will be used to cover the interest, which amounts to almost $3 billion annually.
